The UN Global Policy Model (GPM): Technical .GPM technical description p. 1 GPM OVERVIEW The Global

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Text of The UN Global Policy Model (GPM): Technical .GPM technical description p. 1 GPM OVERVIEW The Global

  • TheUNGlobalPolicyModel(GPM):

    TechnicalDescription

    FrancisCrippsandAlexIzurieta*

    May2014

    Thistechnicaloverviewrefersspecificallytoversion5.2coftheGPM.

    * FrancisCripps:DirectorofAlphametrics

    AlexIzurieta:SeniorEconomist,UNCTAD

  • TABLEOFCONTENTSGPMoverview................................................................................................................................ 1 Modelstructureandspecification .......................................................................................... 4 Domesticandglobalinteractions ............................................................................................................................ 4 Financeandstockflowclosures ...........................................................................................................................................5 Demographics,labourandincomedistribution............................................................................................................6

    Behaviouralequations................................................................................................................ 8 Incomeandexpenditure .............................................................................................................................................. 8 Theprivatesector .......................................................................................................................................................................8 Thegovernmentsector.............................................................................................................................................................9

    Tradeandtheexternalcurrentaccount.............................................................................................................10 Tradeinmanufacturedgoods............................................................................................................................................. 10 Tradeinservices....................................................................................................................................................................... 12 Tradeinprimarycommodities .......................................................................................................................................... 12 Energytradeandenvironmentalconsiderations ...................................................................................................... 13 Externalincomeandtransfers ........................................................................................................................................... 15

    Thefinancialsector:flowoffunds,holdinggainsandbalances .............................................................15 Governmentdebtandassettransactions ...................................................................................................................... 17 Theexternalpositionandexchangerates..................................................................................................................... 19 Thedomesticbankingsystem ............................................................................................................................................ 21 Capitalstockandprivatewealth ....................................................................................................................................... 22 Interestrates .............................................................................................................................................................................. 22

    Inflationandemployment.........................................................................................................................................23 Priceformation.......................................................................................................................................................................... 23 Employment................................................................................................................................................................................ 24

    Selectedmultipliertables........................................................................................................25 Appendix:notation,deflatorsandmodelvariables ........................................................35 1.Notationandmeasurementconventions .......................................................................35 Domesticincomeandexpenditure .......................................................................................................................35 Internationaltradeandotherexternaltransactions....................................................................................35 Pricesandrates..............................................................................................................................................................37 Assetsandliabilities ....................................................................................................................................................37 Actualandsimulatedvalues.....................................................................................................................................39 Residualsandinstruments .......................................................................................................................................39

    2.Realvalues,volumesandpricedeflators......................................................................40 3.Variablesandidentities ......................................................................................................42 Modelvariables ..............................................................................................................................................................42 Additionalvariablesforpolicyevaluation.........................................................................................................49

  • GPMtechnicaldescription p.1

    GPM OVERVIEW

    TheGlobalPolicyModel(GPM)isatoolforinvestigationofregionalandglobalpolicyissues.1Themodelmaybeusedtotracehistoricaldevelopmentsandsimulatepotentialfutureimpactsoftrends,shocksandpolicyinitiativesovermediumtermtimescalesupto15or20yearsintothefuture.ThemainpurposeoftheGPMistoprovideempiricalandrigorouslystructuredinsightsintoproblemsofpolicydesignandinternationalcooperation.TheGPMisnota(shortterm)forecastingmodel.

    Incommonwithothermacromodels,theGPMcomprisesadatabankofhistoricaltimeseriesandasetofcomputerprogramsthatorganizetheoriginaldata,estimatemodelparametersandgeneratescenarios.Bothsystems,thedatasetandthemodel,areselfcontainedanddistributable.Asfarasdataisconcerned,themajorchallengeistobenefitfromtheconsiderableavailabilityofannualdataforallcountriesandcompilethevarioussourcesinarigorousmanneracrossfields,countriesandtime.TheGPMenforcesstrictnationalaccountingconsistency,extendedintorelateddomainssuchastradeandbalanceofpayments,bankingandgovernmentfinance,populationandemployment,incomedistribution,energyandemissions,etc.

    TheGPMhasbeendesignedtofacilitatealternativeschemesofgeographicdisaggregation(flexiblegeometry)dependingonthepurposesforwhichthemodelisused.AstandarddecompositioninthecurrentversionofthemodelincludessixteenG20membersandafurtherninecountrygroups,amountingtoatotalof25countriesandgroupscoveringtheworldasawhole.Otherdecompositionshavebeenusedtostudyspecifictopics,likeenergyproduction,useandenvironmentalimpact;exportdiversificationandtradeagreements,etc.

    Regardingthemodellingframework,earlyglobalempiricalinvestigationsofpolicyissuesattemptedtoensureconsistencybyputtingtogethercountrymodelsprovidedindependentlybynationalgovernmentsorthinktanks.Thisapproach,likethatformalisedintheLINKprojectundertheauspicesoftheUN,haveknownlimitations

    1 ThefirstversionoftheGPMwascreatedbytheDepartmentofEconomicandSocialAffairsoftheUnitedNationsin2007.Itdrewheavilyfromtheexperienceofmorethan30yearsofglobalmodellingacquiredbytheDepartmentofAppliedEconomics(DAE)oftheUniversityofCambridge,UK.OneofthemainauthorsofDAEsglobalmodellingwork,FrancisCripps,hasbeentheprincipalinvestigatorbehindallversionsoftheUNGPM,includingthisone(5.c).FrancisCrippswasjoinedbyAlexIzurietawhileattheUniversityofCambridge,thenDESAandatpresentUNCTAD,andbyRobVos,thenDirectoroftheDepartmentofPolicyAnalysisofDESA,withwhomearlierpresentationsoftheGPMwerecoauthored.ApartfromDESA,otherpartnershavecollaboratedinthedevelopmentofthemodel,mostnotablyUNDPsInternationalPolicyCentre(IPC),CambridgeEndowmentforResearchonFinance(CERF,UniversityofCambridge),UNCTAD,ILO,andtheGlobalDevelopmentandEnvironmentInstitute(GDAE)ofTuftsUniversity(MA,US).FromDecember2013onwards,theresponsibilityforthemaintenanceandrevisionsofthemodelresidesonUNCTAD.UNCTADiscommittedtomakethedatabankandmodelprogrammesavailabletoawideraudience.

  • GPMtechnicaldescription p.2

    duetothediversityofunderlyingmodelsandthelimitsoflinkingoutcomeswithfixedtradematrices.TheGPMbreakswiththispatternasitreliesonafullyintegratedanalyticalstructurewherestandardizedmodelsofcountriesorcountrygroupsareresolvedendogenouslythroughadynamictradeandfinancialstructure.Thisfacilitatestheinvestigationofglobalinteractionsanddynamicsovertimeaswellasthesimultaneousevaluationofpoliciesandoutcomesforindividualcountrieswithdifferenteconomicstructuresandatdifferentlevelsofdevelopment.

    Behaviouralspecificationishomogenousacrosscountriesandstructuraldifferencesareexplainedendogenouslywithinthemodelratherthanbeingimposedexogenouslybytheuseofdifferentspecificationspercountry.Itisnottheonlymodeltoemployacommonspecificationofbehaviouraidedbydifferentiatedfixedeffectsandstatevariablesasdenominatorsforcorrectionofheteroskedasticity.Inaddition,continuinginvestigationisbeingundertakentoclarifyreasonsfordifferencesandrelatethemtostruct